Risks associated with investing

Part of successful investing is based on understanding and managing risk. In the investment world, risk refers to the elements that determine whether an investment's value or return will be lower or higher than expected. Here's a quick glossary of the most common risks investors face:

• Business risk: The risk specific to a business, firm or property that may cause it to fail as a result of poor earnings from operations or poor management.
• Market or volatility risk: Unrelated issues, including world events, tax laws and the "mood" of the market can cumulatively affect securities prices resulting in changes in stock or bond prices. While market or volatility risk is a significant short-term risk, it becomes less significant with time.
• Diversity risk: This is the risk that goes along with putting all of your "eggs" in one basket. If you own only a few investments, or all of your investments are concentrated in a particular industry or geographic location, you are extremely vulnerable to loss if one of them performs poorly.
• Purchasing power (inflation) risk: Although not a short-term risk, in the long term, the cumulative effect of inflation risk erodes value and reduces returns and purchasing power.
• Currency risk: Shifts in foreign exchange rates can change the dollar value of international investments.
• Interest rate risk: As interest rates rise, bond prices usually fall, lowering the value of bond investments. Conversely, as interest rates fall, bond prices usually increase, increasing the value of bond investments.
• Liquidity risk: When you put money into investments that aren't actively traded, you may not get a fair price if you had to sell suddenly in order to obtain cash or liquid assets.
• Default risk: Bond issuers may default on principal and interest payments. Bonds and bond portfolios carry ratings to help identify this risk. With other types of risk, you have the chance of waiting and potentially recouping your losses. With this type of risk, your loss may be permanent.

The information provided in the Investment Basics portion of this web site is presented for general educational purposes only and should not be construed as investment advice. Before investing and periodically thereafter, you should read the prospectus and consider additional research to ensure that your investments satisfy your goals and objectives.

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